4 Stocks to Watch as Tech Earnings Season Begins By Jim Bach

This earnings season will be awash in fascinating storylines from corporate America, and the technology earnings season will no doubt weave the most interesting of narratives. That's because tech has been on a roll for the third quarter. The post 4 Stocks to Watch as Tech Earnings Season Begins appeared first on Money Morning - Only the News You Can Profit From .

A slew of company demergers and business shakeups have made this quarter the "put up or shut up" moment for many of the tech sector's biggest stocks to watch.

You see, tech companies often outperform other sectors because they're constantly forced to innovate. The ones that do so successfully reflect these wins in revenue.

stocks to watch When tech companies don't modernize and hold too tight to old business practices, their more adaptable rivals leave them in the dust.

And that's where this third-quarter tech earnings story begins.

Money Morning Defense and Tech Specialist Michael Robinson expects the sector to beat the broader market with between 5% and 7% earnings growth.

This tech earnings season also follows an incredibly impressive quarter for the sector. The Nasdaq 100 grew 8.4% in Q3 against the S&P 500's 2.5% and the Dow Jones Industrial Average's 1.9%.

We took a look at four of the most important tech stocks to watch this earnings season. Here's a write up of what to watch and why it matters...

4 Tech Stocks to Watch This Earnings Season

Tech Stocks to Watch No. 1: eBay Inc. (Nasdaq: EBAY) / Earnings Date: Oct. 15

EBAY last month announced it would spin out its payments business, PayPal, into a separate public company.

The announcement came following a spat between EBAY Chief Executive Officer John Donahoe and activist investor Carl Icahn, who took up a stake and called for this action. Icahn joined the board and the face-off turned cordial before the spin-off.

Losing PayPal is big.

Online payments brought in almost $2 billion to EBAY's $4.4 billion in the second quarter. PayPal's 20% revenue growth compared to the EBAY marketplace's 9%.

And Tesla Motors Inc. (Nasdaq: TSLA) CEO and PayPal founder Elon Musk said he values PayPal at $100 billion. Compare that to EBAY's current market cap of $69 billion.

Investors will want to keep an eye on the revenue breakdown for EBAY to see how much the firm is going to miss when it parts company with PayPal.

"We want to see what's happening with the PayPal division, if they report that out versus the overall company," Robinson said, adding that he wants "to see what's happening with their Marketplace with the eBay aspect of things."

Money Morning members can see the next three big storylines for the technology earnings season below.

Tech Stocks to Watch No. 2: International Business Machines Corp. (NYSE: IBM) / Earnings Date: Oct. 20

IBM has bright prospects right now with its renewed focus on Big Data. In short, IBM is trying to build a new business unit that taps into the realm of processing large, unstructured, raw data.

Just think Watson, the computer contestant that beat out to human contestants on "Jeopardy!" in 2011.

There's a problem though.

IBM has been losing money over the last two years, and investors are wondering if IBM and CEO Virginia "Ginni" Rometty can remedy this on the Big Data push.

"Virginia Rometty has had some trouble getting that company to really pull it all together and start doing some meaningful recovery for the shareholders," Robinson said.

Tech Stocks to Watch No. 3: Yahoo! Inc. (Nasdaq: YHOO) / Earnings Date: Oct. 21

This earnings season marks the start of the post-Alibaba era for YHOO. YHOO's once 40% stake in Chinese e-commerce giant Alibaba Group Holding Ltd. (NYSE: BABA) was trimmed to about 23% after a 2012 sell-off.

YHOO shed more shares on the Alibaba IPO last month and now holds a 16.3% stake.

This quarter presents a very pressing concern for YHOO shareholders: YHOO won't have BABA to fall back on forever.

That's because these share repurchases are a part of what BABA called a "proposed staged exit."

This is a harsh reality for a company that has seen its core business erode while equity investments overseas flourished. YHOO is essentially operating two businesses: a struggling, tenured tech company and an investment house with a large stake in booming Asian e-commerce, through BABA and a 35% stake in Yahoo! Japan.

All eyes are on CEO Marissa Mayer, who was tasked with turning around the core business when her services were enlisted in 2012. This is all as the biggest driver of YHOO's earnings is heading for the exit.

This earnings season will be the first look at Mayer's business acumen, and will be a gauge on how well she's handled this turnaround.

"We're further along, we ought to know what's going on by now," Money Morning's Robinson said.

Tech Stocks to Watch No. 4: Hewlett Packard Co. (NYSE: HPQ) / Earnings Date: Nov. 25

In many ways, HPQ is in the same boat as YHOO. CEO Meg Whitman inherited a company in disarray and is expected to turn it around.

And as recent news coming out of the company illustrates, Whitman is ready to make some big moves.

Just last Monday, HPQ announced that it was going to spin off its printer and PC business into a company called HP Inc., while hardware, software, and cloud computing would be split into Hewlett-Packard Enterprise.

Fresh off the news of this demerger, this season will no doubt be one of deep reflection and assessment of Whitman's now three-year effort to reinvigorate the company.

"We're in the midst of a big restructuring now," Robinson said. "I think this is a good benchmark-slash-report card period for Meg Whitman."

More from Michael Robinson: The headlines last week were filled with news about eBay Inc.'s (Nasdaq: EBAY) plan to spin off PayPal as a publicly traded company in 2015. But the truth is the really big story here - and all the profits that will come with it - was missed. Until now...

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The post 4 Stocks to Watch as Tech Earnings Season Begins appeared first on Money Morning - Only the News You Can Profit From.

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